Govt to close more banks later this month

JAKARTA (JP): Minister of Finance Bambang Subianto said on Thursday that the government would close down more banks this month in an effort to reform the country's ailing banking industry.

However, he stressed that depositors had no reason to panic because all deposits at the closed banks would be fully guaranteed by the government.

"I openly announce here that in the near future there will be further bank liquidations," he told members of the House of Representatives Commission VIII for state budget and finance during deliberations on the proposed state budget.

He said that the banking closures would begin after final deliberations on the 1999/2000 state budget on Feb. 26.

He added that after the budget was approved the government would begin to inject recapitalization funds into banks qualified to join the recapitalization program, which is designed to bring banks' capital adequacy ratio (CAR) to at least 4 percent by the end of March.

"Only banks which have the potential to survive and thrive can join the recapitalization program," he said.

Banks eligible to join the government's bank recapitalization program are those which have a CAR level of between minus 25 percent and less than 4 percent.

CAR is the ratio between equity capital and risk-weighted assets.

The government has divided the country's some 200 commercial banks into three categories: category A, banks with CAR levels equal to or above 4 percent; category B, banks with CAR levels between minus 25 percent and less than 4 percent; and category C, banks with CAR levels less than minus 25 percent.

The government announced in December that 54 private banks had been classified as category A banks, meaning they met the basic CAR requirement.

Bambang, however, told the House members on Thursday that more conditions were required to join the recapitalization program. These conditions include the banks' ability to boost their CAR levels to an 8 percent minimum by 2001, a viable working plan to meet a prudential ruling, a qualified and capable management team and the ability to provide at least 20 percent of the recapitalization funding in cash.

The government has promised to provide up to 80 percent of the recapitalization funding by issuing bonds.

"Banks in category C and category B which can't meet the requirements for recapitalization will be closed down and liquidated," Bambang said.

He explained that the rigorous selection process was needed because the recapitalization program was not merely meant to raise the banks' CAR levels, but also to improve their performances in order to support the sagging real sector.

The government's bank recapitalization program has received strong criticism, particularly relating to the large amount of money needed for the program and the lack of transparency in the selection process, especially following recent press reports that the government had discreetly picked privately run Lippo Bank and Bank Sembada Artanugroho to join 10 regional development banks in the first batch of banks to be recapitalized by the government.

A governmental decree dated Jan. 18 which was leaked to the press last week stipulated that publicly listed Lippo Bank would receive Rp 3.75 trillion out of the Rp 4.29 trillion earmarked for the first round of recapitalizations.

This raised speculation that Lippo managed to secure the lion's share of the recapitalization funding because of the cozy relationship between the bank's owners, the Riady family, and President B.J. Habibie.

The government has denied this allegation, saying that the banks were approved for recapitalization because they were the only banks which met the program's qualifications, including the capability to provide 20 percent of the recapitalization funding in cash.

The House also lambasted the governmental decree, saying it was not only premature but had no legal basis because the 1999/2000 state budget, in which the government earmarked Rp 18 trillion to partly finance the interest of the bonds issued to raise funds for the recapitalization program, had not yet won approval.

However, Bambang stated that the government would only begin the recapitalizations after the House approved the state budget.

He said the decree was merely meant to establish a ceiling for the funding to be received by the banks, adding that the final figures would have to await further calculations by the central bank, especially in the case of publicly listed Lippo Bank, whose shareholders might raise more than 20 percent of the needed recapitalization funds.

"The issuance of the governmental decree doesn't mean that the government has injected the funding," Bambang said. (rei)